Excel Online Structured Activity: Residual dividend modelWalsh Company is considering three independent projects, each of which requires a $6 million investment. The estimated internal rate of return (IRR) and cost of capital for theseprojects are presented below:Project H (High risk):Cost of capital = 16%IRR = 19%Project M (Medium risk):Cost of capital = 14%IRR = 12%Project L (Low risk):Cost of capital = 8%IRR = 11%Note that the projects' costs of capital vary because the projects have different levels of risk. The company's optimal capital structure calls for 35% debt and 65% common equity,and it expects to have net income of $13,004,500. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis toanswer the question below.XOpen spreadsheetIf Walsh establishes its dividends from the residual dividend model, what will be its payout ratio? Round your answer to two decimal places.%

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Answered: Excel Online Structured Activity:…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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NOT GRADED Excess Present Value Index and Average Rate of ReturnHighpoint Company is evaluating five different capital expenditure proposals. The company's hurdle rate for net present value analyses is 12%. A 10% salvage value is expected from each of the investments. Information on the five proposals is as follows: Proposal Required Investment PV at 12% of After-Tax Cash Flows Avg. Annual Net Income from Investment A $265,000 $305,030 $37,400 B 195,000 231,780 26,000 C 155,000 168,040 19,200 D 175,000 211,300 27,600 E 123,000 131,990 14,960 a. Compute the excess present value index for each of the five proposals.Round answers to three decimal places. Proposal Excess PV Index A Answer B Answer C Answer D Answer E Answer b. Compute the average rate of return for each of the five proposals.Round answers to one decimal place. For example, 0.4567 equals 45.7% Proposal Avg. Rate of Return A Answer B Answer C…
Unequal lives-ANPV approach Portland Products is considering the purchase of one of three mutually exclusive projects for increasing production efficiency. The firm plans to use a 13.1% cost of capital to evaluate these equal-risk projects. The initial investment and annual cash inflows over the life of each project are shown in the following table. (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) Initial investment (CF) Year (t) 1 2345678 u. VUIMMU BIV TRE Project X $78,000 $16,700 25,100 33,000 40,800 PETIT. Project X Project Z Project Y Project Y $52,000 Cash inflows (CF) $27,800 38,200 a. Calculate the NPV for each project over its life. Rank the projects in descending order on the basis of NPV. b. Use the annualized net present value (ANPV) approach to evaluate and rank the projects in descending order on the basis of ANPV c. Compare and contrast your findings in parts (a) and (b). Which project would you recommend that the firm…
Project X Initial investment (CF) $500,000 Year (1) 1 2 3 4 5 Project Y $330,000 Cash inflows (CFt) $130,000 $120,000 $130,000 $200,000 $240,000 $150,000 $130,000 $75,000 $80,000 $60,000
Task 1: The firm has provided the following financial data: Cost of equity is 13.5%. Net income is €2,500. The firm is considering the following investment projects: Size of project IRR of project €1,000 12.0% €1,200 €1,200 €1,200 €1,000 ● ● Project A B C D E Target capital structure is 50% debt and 50% equity. After-tax cost of debt is 8%. 11.5% 11.0% 10.5% 10.0% 1) Determine the firm's weighted average cost of capital. 2) Identify the project(s) that the firm should accept. 3) Identify the total capital budget. 4) If the firm follows a residual dividend policy, determine its payout ratio.
Average Rate of Return Method, Net Present Value Method, and Analysis for a service company The capital investment committee of Arches Landscaping Company is considering two capital investments. The estimated operating income and net cash flows from each investment are as follows: Front-End Loader Greenhouse Operating Net Cash Operating Net Cash Year Income Flow Income Flow 1 $32,300 $103,000 $68,000 $165,000 32,300 103,000 52,000 139,000 32,300 103,000 26,000 98,000 4. 32,300 103,000 11,000 67,000 32,300 103,000 4,500 46,000 Total $161,500 $515,000 $161,500 $515,000 Each project requires an investment of $380,000. Straight-line depreciation will be used, and no residual value is expected. The committee has selected a rate of 10% for purposes of the net present value analysis. Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 0.943 0.909 0.893 0.870 0.833 0.890 0.826 0.797 0.756 0.694 0.840 0.751 0.712 0.658 0.579
Subparts E, F and G please.
Average Rate of Return Method, Net Present Value Method, and Analysis for a service company The capital investment committee of Arches Landscaping Company is considering two capital investments. The estimated operating income and net cash flows from each investment are as follows: Front-End Loader Greenhouse Year OperatingIncome Net CashFlow OperatingIncome Net CashFlow 1 $55,800 $181,000 $117,000 $290,000 2 55,800 181,000 89,000 244,000 3 55,800 181,000 45,000 172,000 4 55,800 181,000 20,000 118,000 5 55,800 181,000 8,000 81,000 Total $279,000 $905,000 $279,000 $905,000 Each project requires an investment of $620,000. Straight-line depreciation will be used, and no residual value is expected. The committee has selected a rate of 12% for purposes of the net present value analysis. Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0.694 3 0.840 0.751 0.712…
Net present value method, internal rate of return method, and analysis for a service company The management of Advanced Alternative Power Inc. is considering two capital investment projects. The estimated net cash flows from each project are as follows: Year Wind Turbines Biofuel Equipment 1 $230,000 $410,000 2 230,000 410,000 3 230,000 410,000 4 230,000 410,000 The wind turbines require an investment of $698,510, while the biofuel equipment requires an investment of $1,170,550. No residual value is expected from either project. Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 1.833 1.736 1.690 1.626 1.528 3 2.673 2.487 2.402 2.283 2.106 4 3.465 3.170 3.037 2.855 2.589 5 4.212 3.791 3.605 3.353 2.991 6 4.917 4.355 4.111 3.785 3.326 7 5.582 4.868 4.564 4.160 3.605 8 6.210 5.335 4.968 4.487 3.837 9 6.802 5.759 5.328 4.772 4.031 10 7.360 6.145 5.650 5.019 4.192 Required: 1a. Compute the net present value for each project. Use a rate of…
Net Present Value Method, Present Value Index, and Analysis First United Bank Inc. is evaluating three capital investment projects using the net present value method. Relevant data related to the projects are summarized as follows: BranchOfficeExpansion ComputerSystemUpgrade ATMKioskExpansion Amount to be invested $863,421 $519,486 $311,214 Annual net cash flows: Year 1 358,000 243,000 165,000 Year 2 333,000 219,000 114,000 Year 3 304,000 194,000 83,000 Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0.694 3 0.840 0.751 0.712 0.658 0.579 4 0.792 0.683 0.636 0.572 0.482 5 0.747 0.621 0.567 0.497 0.402 6 0.705 0.564 0.507 0.432 0.335 7 0.665 0.513 0.452 0.376 0.279 8 0.627 0.467 0.404 0.327 0.233 9 0.592 0.424 0.361 0.284 0.194 10 0.558 0.386 0.322 0.247 0.162 Required: 1. Assuming that the desired rate of return is 6%,…
Excel Online Structured Activity: Residual dividend model Walsh Company is considering three independent projects, each of which requires a $6 million investment. The estimated internal rate of return (IRR) and cost of capital for these projects are presented below: Project H (High risk): Project M (Medium risk): Project L (Low risk): Cost of capital = 17% Cost of capital % = 13% Cost of capital = 7% IRR = 21% IRR = 10% IRR = 9% Note that the projects' costs of capital vary because the projects have different levels of risk. The company's optimal capital structure calls for 45% debt and 55% common equity, and it expects to have net income of $14,746,500. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the question below. X Open spreadsheet If Walsh establishes its dividends from the residual dividend model, what will be its payout ratio? Round your answer to two decimal places.
Payback and NPV Neil Corporation has three projects under consideration. The cash flows for each project are shown in the following table. The firm has a 16% cost of capital. Calculate each project’s payback period. Which project is preferred according to this method?
Average Rate of Return Method, Net Present Value Method, and Analysis for a service company The capital investment committee of Arches Landscaping Company is considering two capital investments. The estimated operating income and net cash flows from each investment are as follows: Front-End Loader Greenhouse Year OperatingIncome Net CashFlow OperatingIncome Net CashFlow 1 $58,000 $183,000 $122,000 $293,000 2 58,000 183,000 93,000 247,000 3 58,000 183,000 46,000 174,000 4 58,000 183,000 20,000 119,000 5 58,000 183,000 9,000 82,000 Total $290,000 $915,000 $290,000 $915,000 Each project requires an investment of $580,000. Straight-line depreciation will be used, and no residual value is expected. The committee has selected a rate of 10% for purposes of the net present value analysis. Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 0.890 0.826…

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